Rail company faces pounds 1m fine over cancelled service

Train of misfortune: Tough ultimatum from watchdog leaves South West Trains facing ultimate loss of its pounds 270m business

Stagecoach, the company that runs the troubled train line South West Trains, faces a pounds 1m fine from the rail watchdog and ultimately the loss of the pounds 270m business unless it improves its cancellation-hit service.

The company, which runs commuter trains from London to Hampshire and Surrey, was also fined pounds 750,000 last month for wiping 39 trains from its schedule. John O'Brien, the franchising director, took the decision after "passengers suffered an unacceptable level of cancellations".

SWT has had a run of bad fortune. First, work on a stretch of track took nine days to complete instead of a weekend. Secondly, the company shed 70 of its older, more experienced train drivers - forcing its to cut daily schedules. Managers also suggest that a small minority of drivers are unhappy with the new pay deal - accepted by the unions - and are wrecking timetables with a campaign of "non co-operation".

This will cut little ice with passengers. More than 100,000 rail commuters faced nightmare journeys home yesterday after trains were reduced in length and then slowed to a crawl because of a track fire. "I've been delayed for three hours," said Louise Cronk, a 26-year-old planning consultant. "This has become a part of everyday life. I'm just fed up."

Mr O'Brien has a string of financial penalties he can impose under the contract with Stagecoach. In the case of SWT, Stagecoach would face substantial fines if it ran less than 98.5 per cent of its daily scheduled service.

The train firm has been called in to explain poor service levels twice in the first 12 months under private ownership. The government rules mean if any operator breaches the agreed service levels three times in three years, substantial fines will be imposed.

Managers first met civil servants last summer when worn bearings on some older carriages forced SWT to cut back on the length of trains. They were called in again to explain why service levels dipped below the 98.5 per cent limit in February after SWT cut driver numbers by 10 per cent.

Opraf, the office of passenger franchising, will levy the pounds 1m fine if SWT breaches the limit again in April. Stagecoach could lose the franchise - which would cost the company its performance bond worth pounds 20m - if service levels dip below 97.5 per cent.

Brian Cox, the managing director of SWT, said the company was confident of "meeting the Opraf targets". "I think Opraf has made this announcement ... to show MPs it has teeth and knows what it is doing. We plan to have a full service running again by April 1," he said.

Save Our Railways, the rail pressure group, called for the service to be nationalised. "It was the first to fall into private hands, the first to go wrong and should be the first back into the public sector," said national secretary Keith Bill.

He added: "The public should be aware that a pounds 1m fine for Stagecoach, who get pounds 60m a year to run it, will have as little effect as using a peashooter against an elephant."